Twisting Flatter, No Lasting Reaction To North Korean Missile Launch

Cash JGBs run 2bp cheaper to 0.5bp richer across the curve, with only 40s firming on Friday. Influence from Thursday’s wider core global FI trade seemingly crept in. Meanwhile, futures print -10 ahead of the bell and have struggled to turn bid all day.

• Domestic CPI data may also have had some minor impact on price action. The 3 major CPI metrics all topped consensus estimates by 0.1ppt, as the major Y/Y inflation rates moved 0.6-0.7ppt higher vs. previous readings. The readings won’t be a gamechanger for the BoJ, with the Bank committed to maintaining its ultra-loose policy settings, as it looks to foster meaningful wage growth in a bid to develop demand-pull, not cost-push, inflation.
• The home bias of Japanese investors that we have discussed previously will likely have aided the flattening move.
• There wasn’t much in the way of tangible, lasting reaction to the latest North Korean missile test, which saw an ICBM fall in the sea which is covered by Japan’s EEZ (there was no damage reported re: Japanese assets). Language from Japanese, South Korean & U.S. leadership has condemned the action, as you would expect.
• Elsehwere, policymaker rhetoric failed to inspire anything in the way of meaningful price action, offering little new for participants to trade off.
• Looking ahead, BoJ Rinban operations covering 1- to 10-Year JGBs headlines domestic matters on Monday.